Posted on
October 24, 2024
by
Brian Elder
There was some drama in Toronto’s real estate market in September, but it didn’t have anything to do with what was bought or sold, it’s in the changes to mortgage rules that were announced to roll out in the coming months.
What we saw was normal market activity. We always see an uptick in September once people are back from summer vacations. And based on watching the market every day, I expected that both sales and listings would be up.
One change is that my phone is ringing a lot more. People are asking questions and being more engaged with the market. There’s still a somewhat low sense of urgency, but potential clients and long-standing ones too, are calling to talk about their plans for 2025 and asking about further rate decreases.
Many economists were predicting that the Bank of Canada would lower the key interest rate by another 50 basis points this month and as I write this now, the news hit all the channels. Will this be the last of the rate decreases? Chances are NO. There is talk of further future reductions as long as we’re able to keep inflation in and around the sweet spot of 2%.
So my advice to homeowners right now? Probably not a popular one in real estate circles but, unless consumers really need to sell, I’m advising people to wait I think we’ll see a busy spring market. We’ll just have to see if the buyers will be ready to buy…
Having said that, I do think that now is a good time to buy: The average price in the 416 was down slightly from 2023, and by slightly, I mean less than one percent ($7,555). And despite so many condos being on the market at the time of writing this (7185), the average price for a condo was down by 3.5%, or just over $24,000.
You may wonder, why am I telling you about this? If you’re in the market to buy, especially a condo, you have an incredible amount of choice. Prices are actually lower than they were in 2022.
If you came here for a little drama, here it is:
In August, a rule change came into effect that allows first-time buyers purchasing new builds, (including condos) to qualify for 30-year mortgage amortizations.
The next round of changes comes into effect on December 15:
If your down payment is less than 20%, you need to have mortgage insurance. However, you can only get that insurance if your mortgage is under $1M. As of December 15th, the amount of mortgage you can insure increases to $1.5M to reflect how much prices have increased since 2012.
In theory, this is good news. It’s a move in the right direction to get people to transact in real estate. It will make homes that were less accessible more accessible – to those who can afford it.
Let’s crunch some numbers.
The minimum down payment for a $1.5M home would be $125,000.
(That’s 5% of first $500,000 plus 10% of the remaining amount)
This means that a home buyer could pick up a $1.5M home for just $125,000 down; if their income qualifies. Buyers also have to take into consideration land transfer taxes ($52,500 or $44,475 if they’re a first-time home buyer), which means the buyer has to come to the table with about $175,000, plus legal fees.
And that’s even before the carrying costs. When you’re buying a home, you have to take other expenses into consideration. Monthly, the mortgage on that property would be about $8000. Property taxes would be about $900 and the insurance would be about $50.
The carrying cost on that property would be about $9000 per month and that doesn’t include utilities or regular maintenance.
In order for this to have an impact, there would have to be a large number of buyers out there grossing at least $250K annually and currently unable to save enough for a down payment. I don’t think this is as risky as it sounds - CMHC has pretty strict requirements for approval.
Other new rules will be rolling out over the coming months, including the ability to refinance to help cover the cost of building secondary suites.
Another change coming in December, all first-time buyers and all buyers of new builds will be eligible for 30 year amortizations, lowering the monthly payment.
The next change will come into effect on January 15, 2025, when homeowners will be able to refinance their insured mortgages to access the equity in their homes and help pay for the construction of a secondary suite, such as basement rental apartments, in-law suites, and laneway homes.
As always, your best resources are a good mortgage broker and a good realtor. If you have any questions about how you can take advantage of these new rules, please get in touch.
